Friday, May 3, 2013

Today's links

1--Roubini: Fed Risking Sequel to 2008 Financial Crisis, CNBC

The Federal Reserve's commitment to loose monetary policy is likely to lead to asset and equity bubbles in the next two years which could be worse than the previous crisis, renowned economist Nouriel Roubini said in an opinion piece for Project Syndicate.

Roubini, co-founder and chairman of Roubini Global Economics famously dubbed Dr Doom for his accurate prediction of the 2008 financial crisis, wrote earlier this week that "the problem is that the Fed's liquidity injections are not creating credit for the real economy, but rather boosting leverage and risk-taking in financial markets."

"The issuance of risky junk bonds under loose covenants and with excessively low interest rates is increasing; the stock market is reaching new highs, despite the growth slowdown; and money is flowing to high-yielding emerging markets," he added.

According to Roubini, a slow exit from the Fed's quantitative easing (QE) policy would be similar to 2004, when the central bank began to slowly raise rates. Between June 2004 and December 2007, the Fed raised rates in 25 basis point increments. The gradual rate hikes were blamed for keeping monetary policy accommodative for too long and worsening the housing bubble. ...

According to him, markets should be braced for turmoil once monetary tightening starts and further turbulence once tightening is finished.
"The exit from the Fed's QE and zero-interest-rate policies will be treacherous: Exiting too fast will crash the real economy, while exiting too slowly will first create a huge bubble and then crash the financial system. If the exit cannot be navigated successfully, a dovish Fed is more likely to blow bubbles."

2--Housing recovery? Wall Street Examiner

The so called recovery is mostly a recovery in prices. Thanks to the Fed mortgage subsidy, we have housing inflation, but not much recovery in housing activity relative to historical norms. The market has bounced back to around 50% of historically normal levels only with the help of the massive Fed subsidy. We have to wonder where the market would be without that, or rather what will happen when that subsidy is withdrawn.  Knowing that removing this subsidy could devastate the so called housing recovery, it seems unlikely that the Fed would only do so under extreme pressure from the market in the form of consumer price inflation.  The government has managed to keep those numbers suppressed.

3--Investors pile into housing, CNBC

As home prices rise, there are fewer bargains in single family homes, but not fewer investors. Their ranks and property portfolios continue to grow. Last month Five Ten Capital, a Piedmont, California-based asset manager, inked a one hundred million dollar deal with Deutsche Bank to open a new fund to buy and manage single family rental homes, expanding Five Ten's range to Texas and Missouri.

If you think about all of the major institutions maybe owning 70,000 total homes compared to the market size of 14 million homes, the long term potential is enormous. Institutions are literally a fly on an elephant," said Aaron Edelheit, CEO of The American Home, an Atlanta-based company that owns and manages about 2,500 homes. "We may look back and realize that the REO [real estate owned] to rental space was only the foundation for an exponentially larger industry with institutions owning hundreds of thousands, if not millions, of homes."
There are 7.2 million more renters today than there were in 2004, and just 400,000 more homeowners, according to the U.S. Census.

Despite the recovery in home sales, the homeownership rate continues to fall, from an all-time high of 69.2 percent to 65 percent in the first quarter of 2013. As home prices rise and the employment picture improves, more people will come back to home ownership, and some of the new rental homes will inevitably be sold, but certainly not all of them.

4---Mission accomplished: Plutocrats rule!, counterpunch

In no uncertain terms, the Urban Institute’s argues, “there is extraordinary wealth inequality between the races.  In 2010, whites on average had six times the wealth of blacks and Hispanics.  So for every $6.00 whites had in wealth, blacks and Hispanics had $1.00 (or average wealth of $632,000 versus $103,000).”  Making matters worse, it point out “the racial wealth gap grows sharply with age.”  The older a person, the poorer s/he will likely be, especially a person of color.

And the big losers in the Great Recession?  “Between 2007 and 2010, Hispanic families saw their wealth cut by over 40 percent, and black families saw their wealth fall by 31 percent,” it reflects.  “By comparison, the wealth of white families fell by 11 percent.”...

The Great Recession of 2008-2010 fulfilled its historic mission.  It legitimized the restructuring of social and economic relations, sanctioning the unquestioned rule of the corporate plutocrats.  In response, a sense of doom seeps through America not unlike that spreading through much of Europe.

The 2008 and 2012 elections of a corporatist moderate enshrined the tyranny of global financial capital and the militarist policies of a failing imperialist power.  Pres. Obama’s elections formally ended the American Century.

5---Recovery for the 7 Percent, counterpunch

To the extent that there is profit growth in US corporations, it comes from labor cost savings from offshoring US jobs and from bringing in foreign workers on work visas.  By lowering labor costs, corporations boost profits and thereby capital gains for those 7 percent who have large holdings of  financial assets.  Those in the 93 percent who are displaced by foreign workers experience income reductions.  This transfer of the incomes of the 93 percent to the 7 percent via jobs offshoring and work visas is the reason for the stark rise in US income inequality.

6---Japan PM's 'stealth' constitution plan raises civil rights fears, Reuters

Shinzo Abe makes no secret of wanting to revise Japan's constitution, which was drafted by the United States after World War Two, to formalize the country's right to have a military - but critics say his plans go deeper and could return Japan to its socially conservative, authoritarian past.
Abe, 58, returned to office in December for a second term as prime minister and is enjoying sky-high support on the back of his "Abenomics" recipe for reviving the economy through hyper-easy monetary policy, big spending and structural reform.

Now he is seeking to lower the hurdle for revising the constitution as a prelude to an historic change to its pacifist Article 9 - which, if strictly read, bans any military. That would be a symbolic shift, loosening restrictions on the military's overseas activities, but would have limited impact on defense as the clause has already been stretched to allow Tokyo to build up armed forces that are now bigger than Britain's.

However, sweeping changes proposed by Abe's Liberal Democratic Party (LDP) in a draft constitution would strike at the heart of the charter with an assault on basic civil rights that could muzzle the media, undermine gender equality and generally open the door to an authoritarian state, activists and scholars say.

"What I find strange is that although the prime minister is not that old, he is trying to revive the mores of his grandfather's era," said Ryo Motoo, the octogenarian head of the Women's Article 9 Association, a group devoted to protecting the constitution....

The real concern is that a couple of years later, we move to a redefinition of a 'new Japan' as an authoritarian, nationalist order," said Yale University law professor Bruce Ackerman.
The LDP draft, approved by the party last year, would negate the basic concept of universal human rights, which Japanese conservatives argue is a Western notion ill-suited to Japan's traditional culture and values, constitutional scholars say.

"The current constitution ... provides protection for a long list of fundamental rights - freedom of expression, freedom of religion," said Meiji University professor Lawrence Repeta. "It's clear the leaders of the LDP and certain other politicians in Japan ... are passionately against a system that protects individual rights to that degree."
The draft deletes a guarantee of basic human rights and prescribes duties, such as submission to an undefined "public interest and public order". The military would be empowered to maintain that "public order."

One proposal would ban anyone from "improperly" acquiring or using information about individuals - a clause experts say could limit freedom of speech. A reference to respect for the "family" as the basic social unit hints, say critics, at a revival of a patriarchal system that gave women few rights.
"The constitution is there to tie the hands of government, not put duties on the people," said Taro Kono, an LDP lawmaker often at odds with his party on policies. "There are some in both houses (of parliament) who don't really understand the role of a modern constitution."

Abe and the LDP say easing the revision procedures would allow voters a bigger say in whether to alter the charter.
"The constitution is not something given by God, it was written by human beings. It should not be frightening to change it so I'd like the people to consider trying it once," Yosuke Isozaki, an aide to Abe, told the Nikkei business daily.

7---From Freddie Mac today: Mortgage Rates Keep Pushing Lower, cal risk 
Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates moving lower for the fifth consecutive week amid the weaker than expected first quarter economic growth advance estimate. The 30-year fixed-rate mortgage at 3.35 percent is hovering just above its all-time record low of 3.31 percent set the week of November 21, 2012. The 15-year fixed-rate mortgage set a new all-time record low this week at 2.56 percent, eclipsing the record set last week.

30-year fixed-rate mortgage (FRM) averaged 3.35 percent with an average 0.7 point for the week ending May 2, 2013, down from last week when it averaged 3.40 percent. Last year at this time, the 30-year FRM averaged 3.84 percent.

15-year FRM this week averaged 2.56 percent with an average 0.7 point, down from last week when it averaged 2.61 percent. A year ago at this time, the 15-year FRM averaged 3.07 percent
8---U.S. Spending Cuts Seen as Key in Slowing Growth, NYT

After a strong start to the year, several economic indicators beginning in March have pointed to much slower growth, largely because of the fiscal headwinds from Washington, economists say.
Job cuts like the kind at Nanocerox remain the exception, rather than the rule. On Thursday, the government said weekly unemployment claims were at a five-year low.
The problem is that companies have not been hiring. This week, a survey of private sector hiring in April came in well below expectations, while indications for everything from retail sales to manufacturing have also been soft recently.
Whatever the data ultimately show for April, economists like Diane Swonk, chief economist for Mesirow Financial in Chicago, say the economy would be showing much more momentum if it were not for the combination of higher payroll taxes that went into effect in January, as well as the process of automatic spending cuts known as sequestration that began to bite last month.
“What’s the biggest drag on the economy? The government,” Ms. Swonk said. “If the government simply did no harm, we could be at escape velocity.”
Without the impact of federal cuts and higher taxes, Ms. Swonk estimates, annual economic growth would be close to 4 percent, above the 2.5 percent pace she is expecting in 2013.
Take a look at reliable figures from The borough of Queens has 2.2 million residents. On April 1, 2013, there were a total of 91 foreclosed and repossessed properties actively listed for sale. That’s right – 91. With more than 101,000 delinquent owner-occupants having been sent a pre-foreclosure notice since early 2010, only 91 repossessed properties are on the market. 
What happened to all the delinquent property owners? Nothing. Take a good look at this chart from the Long Island Real Estate Report.
Long Island monthly lis pendens filings 2005-2013
Keith Jurow

The chart shows monthly foreclosure filings on Long Island. The monthly average is less than 1,000. Remember, more than 240,000 pre-foreclosure notices have been sent to delinquent owner-occupants in the past three years.
Do you see the red line on the top of each bar in the chart which began to appear in late 2009?  Those are refilings. What’s that? Once a filing (called a notice of default) has been active for three years, it expires under NY state law. So the attorney for the lender has to refile the notice and begin the process all over. Picture those owners living in their house for more than three years without having paid a nickel toward the mortgage. It’s crazy, but that is what is occurring throughout Long Island
Figures on the state of the European economy published over the past week are not only the expression of a deepening economic and social crisis. They have a profound historical meaning, pointing to the bankruptcy of the capitalist economic order.

In its latest economic forecast, the International Monetary Fund has predicted that the euro zone area as a whole will contract by 0.3 percent this year, with France joining Italy and Spain as the three major economies in recession. The contraction itself is significant, but the fact that it takes place some five years after the onset of the financial crisis points to the underlying processes that produced it. The European economy is caught in a deepening downward spiral...

Nobel Prize winner George Akerlof likened the economic crisis to a cat that had climbed a tree, did not know how to come down, and was now about to fall. Another economist chimed in that after five years it perhaps was time to get the cat out of the tree, while Nobel Prize winner Joseph Stiglitz explained: “There is no good economic theory that explains why the cat is still up in the tree.”

The bankruptcy of medieval scholasticism and of the feudal social order that underlay it was expressed in the discussions over how many angels could dance on the head of a pin.

If the modern day theologians of capitalism and their discussions of cats up trees appear just as ridiculous, it is not a result of their personal failings. In the final analysis, they are unable to offer any explanation for the deepest crisis in three quarters of a century because the socio-economic order they defend has become antagonistic to any further historical progress.

While the ideologists of the ruling class seized upon the collapse of the USSR to proclaim the end of socialism, the economists and media pundits say nothing about the failure of capitalism.

However, just under the surface of their bewilderment lies the growing fear that this economic breakdown will produce a tremendous upsurge in social and class struggles. Recently a major article in Time magazine noted that Marx had theorized that “the capitalist system would inevitably impoverish the world’s masses as the world’s wealth became concentrated in the hands of a greedy few causing economic crises … A growing dossier of evidence suggests that he may have been right.”

The mass of statistics emanating from Europe and elsewhere show that capitalism has entered a terminal crisis, with revolutionary implications.
it’s rather alarming to see NYSE margin debt just shy of its all-time high as of the March reading.  My guess is we’ve actually already surpassed the all-time high though we won’t officially know until April data is released.  Fun times knowing we live in a world that is built on such a fragile foundation.
Chart via Orcam Financial Group:



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